Key Takeaways
- Thursday’s sharp rally caused many to expect (yet again) that lows are in; however, breakouts above SPX 4114 and QQQ-306.56 are minimum requirements.
- Stock/bond correlation still intact as both stocks and Treasuries rallied this week.
- Cryptocurrencies rebounded Thursday, following the rally in risk assets.
The S&P bounce might seem to be reason for hope for many investors; however, yet again, this has taken on characteristics of a counter-trend move and hasn’t exceeded areas of importance to expect meaningful lows are in place. As has been discussed, cycles point to bottoms in June, which also aligns with many weekly DeMark counts. Furthermore, the Elliott-wave structure of this bounce looks corrective (and not something which should extend past Friday). While the broad-based rally on Thursday is impressive, with groups like Financials and Discretionary making strong recoveries, it remains a concern for Bulls that Defensive groups have also turned in above-average performance this week. Overall, movement above SPX 4114 and QQQ 306.56 is necessary to give this rally some attention. My expectations are that trading lows are certainly close. However, a move back to new lows is still needed to satisfy many of my technical concerns. I am willing to respect any outcome, but we’ll need more proof before blindly jumping onboard, which has failed miserably on prior 2-3 day rally attempts since April.
QQQ downtrends still haven’t been exceeded
For all the excitement about a 2-day rally ahead of a major holiday finally turning into something worthwhile to give us all optimism about a much-needed bounce, it’s important to point out that technical structure remains very much negative.
Prices will require a move above 306.56 (May 17th intra-day highs) at a minimum to expect this bounce might gain some momentum, while daily closes back over prior lows from February/March resistance zone at 317.45-318.26 are truly what’s needed to suggest a bull rally is upon us. Finally, the downtrend from April remains intact and this also needs to be broken.
Yet again, this bounce strikes me as wishful thinking, particularly given the bearish Elliott-wave style bounce apparent on intra-day charts. While I do believe a rally is near and admire the degree to which many of the beaten down sectors are now starting to participate, it’s just hard putting too much faith into a rally when short-term trends remain bearish while weekly momentum is still very much negative.
Ideally, a reversal to test and break lows next week would satisfy many technical requirements for a low, and “checking these boxes” would be reason for me to turn more positive in the short run. As has been discussed, many cycles still show late June as being important. Bottom line, I expect weakness into next week marks a more pivotal area to begin buying, technically speaking, then current levels, so we’ll wait for more proof.
Performance still shows strong gains from Defensives
Interestingly enough, while Energy (yet again) has topped the leaderboard in performance, we’ve also seen some sharp recovery in Financials, which started earlier this week.
However, Real Estate, as of midday Thursday, has outperformed Technology over the past week, and we’ve seen strong gains out of Utilities. Overall, it’s rare that market rallies start following a two-week consolidation near the lows and are kicked off by strong gains in the Defensives. It’s right to watch sector rotation carefully in the days ahead. At present, however, this looks a bit too defensive for me to get comfortable, and Thursday’s top performing group thus far has been the worst performing area over the last month – Consumer Discretionary.
Bitcoin’s reversal directly followed the stock rally Thursday
Bitcoin reversed sharply higher this morning after its breakdown attempt under lows of the last couple weeks. We continue to see Cryptocurrencies following suit with the price action in Equities, and today was no different. The acceleration in risk assets lifting higher coincided with BTCUSD’s early drop to near $28k, then promptly reversing course and pushing up above $29.5k over the last few hours. As hourly BTC charts show, this area just above $28.6k is quite important and this consolidation channel has held intact since 5/13. Key levels to think BTC could be beginning a larger rally lie at $31,275 and recouping that on a close (surpassing $32,950 would give more proof). However, at present, this looks premature technically, and one final pullback to test 5/12 lows near $25,401 still looks more likely before any meaningful low is in place. One should look to buy weakness over the next week, expecting intermediate-term lows could be near.
